AB 1771, also referred to as the California Housing Speculation Act (the “Act”), seeks to tax the percentage of capital gain from the sale or exchange of residential properties within three years of the purchase of the property by an investor at a higher rate of 25%. After then, the additional tax would be phased off in annual increments.
The Act is based on the erroneous assumption that investor-purchasers of residential properties in California are driving up home prices. Fix and flip experts, who provide vital services by rehabilitating sub-standard housing stock, are not excluded from the law. Because the Act raises taxes, it must be approved by two-thirds of the members of each house of the California Legislature. The Act would then become law in 2023 if passed.
Almost all California residential property investors, including fix-and-flippers, are covered by the Act. The Act specifically applies to a “Qualified Taxpayer,” defined as any taxpayer who is not an active-duty military member or a deceased person (property sold or exchanged after the owner’s death).
The Act would apply to almost all residential real estate in California. There are, however, several exceptions to the Act in terms of the types of properties. All exempted properties include multiple-unit affordable housing, subdivided properties, designated open space, non-residential properties, properties exempt from transfer taxes, multiple affordable housing, and qualifying taxpayer’s first primary dwelling. To read more on the speculation Act and its impact on the housing and mortgage space, click here.
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